How much has Revolution Wind stop-work order cost Orsted?
Stop-work order on major offshore wind farm project has been lifted, but not after a delay resulting in considerable delay costs for developers Orsted and Skyborn Renewables
A month after Orsted’s worst nightmares were realised with the stop-work order on Revolution Wind, it has won a court ruling allowing it to get work underway again on the project. But how much has the damaging delay already cost the Danish developer?
So how much will the order have cost Orsted in that time? Not to mention its joint venture partner Skyborn Renewables – a German subsidiary of Global Infrastructure Partners – that owns a 50% stake in the project.
If the order continued after “late September,” Orsted said it could “incur significant additional costs of an uncertain amount,” a fate it appears to have narrowly avoided with yesterday’s ruling.
The $15m figure accounts for only Orsted’s half of the project costs, giving $30m as the total delay cost for the project on a weekly basis.
That figure, if counting from the day the stop-work order was issued (albeit it came relatively late on a Friday) would put the delay cost for Revolution Wind at around $133m – $66m each for Orsted and Skyborn.
This knock-on is due to the fact the projects are using many of the same vessels.
Orsted warned in its investor prospectus last week that each day the Revolution stop-work order remains would result in a “corresponding day’s delay” to turbine installation at Sunrise, which will delay the start of revenues from the project.
Orsted said in its prospectus, published weeks after the stop-work order was implemented, that it was “uncertain” whether it will be able to redirect vessels to Sunrise, which doesn’t necessarily give confidence to the idea that it had managed to achieve this, certainly to a great extent, in the interim period.
Orsted has estimated that, for each week the stop-work order was in place, it will result in a future cost of $10m for Sunrise Wind “due to knock-on delays.”
Again, calculating based on stop-work order lasting 31 days, that comes to a future cost of $44m – solely for Orsted on this occasion.
That would put the total cost of the stop-work for Orsted at roughly $110m.
Clarksons Securities, in its own analysis, also concluded that the “incremental cost” of the stop-work order “may have already surpassed $100m”.
Aside from the direct additional construction costs, the delay will also potentially push back Orsted cashing in on PPA revenues from Revolution Wind and Sunrise, assuming it is not able to somehow make up some of the lost time.
It is also not clear if Orsted has factored in the legal costs of fighting the stop-work order in court to its calculations. Revolution Wind has retained leading US law firm Latham & Watkins to fight the case, which remains ongoing, with any ruling of the DC district court open to appeal, as the billable hours mount up.
Orsted may have won the battle, but a costly war with the Trump administration is far from over.
(Copyright)